Bloomberg News

U.K. Stocks Rebound From Three-Day Drop; Burberry Surges

October 11, 2012

U.K. stocks climbed, rebounding from a three-day selloff, amid speculation a downgrade of Spain’s credit rating will encourage the country to seek a bailout and as U.S. jobless claims slid to a four-year low.

Barclays Plc and Royal Bank of Scotland Group Plc (RBS) gained more than 4 percent as the European Union was said to delay the introduction of tougher Basel bank-capital rules. Burberry (BRBY) Group Plc surged a record 13 percent after the luxury-goods maker reported an acceleration in sales growth. Direct Line Insurance Group Plc rallied 7.4 percent on the first day of trading after its initial public offering.

The FTSE 100 (UKX) Index rose 53.04 points, or 0.9 percent, to 5,829.75 at the close in London. The gauge has advanced 11 percent from this year’s low on June 1 as the European Central Bank unveiled a bond purchase program to support euro-area nations seeking aid. The FTSE All-Share Index also climbed 0.9 percent today, while Ireland’s ISEQ Index slipped 0.3 percent.

“It’s no secret that the market wants to see Spain ask for a bailout,” said James Hughes, chief market analyst at Alpari U.K. Ltd. in London. “What we are now seeing in the market is that any bad news for Spain is positive for the euro zone.”

S&P reduced Spain’s debt rating to one level above junk at BBB-, citing mounting economic and political risks. The downgrade by the ratings agency comes after Spain announced a fifth austerity package in less than a year and published details of stress tests of its banks.

U.S. Economy

U.K. stocks extended gains after a report showed the number of Americans filing first-time claims for unemployment insurance payments fell to the lowest since February 2008. Applications dropped 30,000 to 339,000 in the week ended Oct. 6, according to the Labor Department. Economists in a Bloomberg survey had forecast 370,000 claims.

The Federal Reserve said in its so-called Beige Book late yesterday that the U.S. economy was expanding “modestly” last month, buttressed by improvements in housing and auto sales.

Barclays (BARC), the U.K.’s second-largest bank, rallied 4.8 percent to 232.65 pence, RBS increased 4.2 percent to 273.8 pence, Lloyds Banking Group Plc (LLOY) climbed 2 percent to 39.25 pence and HSBC Holdings Plc, Europe’s largest bank, rose 1.3 percent to 597.2 pence.

The EU may push back when lenders need to start phasing in tougher Basel capital rules by as much as a year after warnings that pressing ahead with the original timetable may drive up costs, according to three people familiar with the talks.

Burberry Surges

Burberry jumped 13 percent to 1,136 pence, the biggest gain since its 2002 IPO. Britain’s largest luxury-goods maker posted a 1 percent increase in sales at stores open at least a year in the second quarter, an improvement on the unchanged performance the company reported on Sept. 11. The retailer also increased its guidance for the second-half retail and wholesale operating margin.

The results are “reassuring,” Louise Singlehurst, an analyst at Morgan Stanley, wrote in a report to clients. “Second quarter like-for-like growth implies an acceleration in the last three weeks of September.”

Analysts at Seymour Pierce Ltd. raised their recommendation for Burberry to buy from hold.

Direct Line rallied 7.4 percent to 188 pence after RBS sold 450 million shares in the U.K. insurer, about a 30 percent stake, for 175 pence each. Britain’s largest government-owned lender raised 787 million pounds ($1.3 billion) from the IPO, which had been forced by EU regulators.

Tate Upgrade

Tate & Lyle (TATE) Plc gained 1.2 percent to 697 pence after Societe Generale SA upgraded the maker of low-calorie sweetener Splenda to buy from hold and increased its price estimate for the shares 24 percent to 805 pence. Analysts cited the potential for an upgrade and re-rating in the next six months.

Wolseley Plc (WOS) added 1.7 percent to 2,694 pence, the first advance in five days. Goodbody Stockbrokers initiated coverage of the building-materials company with a buy recommendation and a share-price estimate of 3,400 pence. The analysts said Wolseley was the best option in the European materials industry to bet on a recovery in U.S. construction.

Bumi Plc (BUMI) surged 39 percent to 259 pence, a record gain, as Indonesia’s Bakrie family offered to buy back the coal assets it helped bring to the London market with Nathaniel Rothschild in a $3 billion deal two years ago.

The Bakrie Group, a palm oil-to-property-empire started in 1942, offered to exchange a 23.8 percent stake in Bumi Plc for 10.3 percent of Jakarta-based PT Bumi Resources. The group also made a conditional proposal to buy back the remaining 18.9 percent in Bumi Resources in cash by Christmas and to make an offer for Bumi Plc’s 84.7 percent stake in PT Berau Coal Energy Tbk within six months.

WH Smith

WH Smith Plc (SMWH) paced declining shares, dropping 3.2 percent to 631 pence. The book and magazine retailer said Chief Executive Officer Kate Swann will step down after nine years in 2013 and named Steve Clarke as her replacement. The shares fell even after the company reported full-year pretax profit of 102 million pounds, beating analyst estimates.

Home Retail Group Plc (HOME) jumped 6.4 percent to 105 pence, the highest since April, amid speculation that Swann, who left Home Retail’s Argos unit in 2003, could return to the retailer. The stock is the second-most shorted among western European retailers, after Ocado Group Plc, with 15 percent of shares outstanding on loan, according to data compiled by Markit.

‘Ideal Person’

“I can understand why the shorts have got nervous at the prospect,” said Nick Bubb, an independent retail analyst in London. “She would be the ideal person to replace Terry Duddy if Home Retail needs a new CEO, but it’s not often that people go back to work for companies they’ve been at in the past.”

Greggs Plc (GRG) lost 4.1 percent to 495.5 pence after the U.K. bakery reported a 2.6 percent decline in same-store sales in the 14 weeks to Oct. 6.

In Ireland, Independent News & Media Plc (INM) plunged 30 percent to 9 euro cents, the lowest level since at least 1988. Trading volume in the shares surged to more than six times the three- month average. Chairman Leslie Buckley last week sold shares in the Dublin-based publisher to avoid triggering a mandatory takeover bid by ally and biggest shareholder Denis O’Brien.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net


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